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OUR SLOWING PRODUCTIVITY, THE EXPERTS CHALLENGED. HAS NERO BEEN FIDDLING WHILE ROME BURNS?

For some time now the experts have been admitting they don’t know why the West’s productivity growth has been slowing. One of their guesses is that technology, one of the major propellants in the past, is temporarily passing commerce and industry by. In place of this, some academics have resorted to complex working papers examining the effect of known population ageing and with an increasing number looking at the quickening retirement of baby boomers, some are finding evidence that the loss of their knowledge and experience is a part-contributor to the decline.

But have they missed a massive parcel of largely unacknowledged knowledge loss arising from the biggest change in workplace practice for more than 50 years?

With the mention of this decampment of know-how deriving from the retirement of baby boomers, it’s not clear from the way the academics have used their standard growth accounting framework if they’ve taken into account the other mass exodus of knowledge and experience from the REST of the working population. This derives from organisations’ OWN, SHORT-TERM and UNIQUE knowledge and experience that absconds as a direct consequence of the very flexible labour market.

If yes, then the academics’ conclusion that productivity growth will continue to slip by another 1.8% by the end of the next decade (http://www.nber.org/papers/w22452) is serious enough. If not, their sums are a GROSS underestimate.

While the study from the eminent National Bureau of Economic Research (NBER) efficiently summarises the overall effects of populating ageing, the data does not tell the full story of the stated knowledge loss or its full impact. The fact that their identified know-how ‘walkout’ comes from baby boomers is an obvious conclusion because their time frame of retirements is easily identifiable alongside its accelerating pace. But while the researchers have correctly concluded that knowledge loss could interact with ageing to affect the overall responsiveness of the economy, the data falls seriously short of its conclusion; it is not specific enough, comprehensive enough and the academics’ understanding of the effects of knowledge loss and the disruptive effect of short jobs tenure is seriously lacking.

That said, how credible is the NBER’s suggestion that knowledge loss from the workforce is a part-explanation for productivity’s decline? Their supposition confirms the same conclusion by an isolated few other US academics, some business publications and this author. Elsewhere, the link has been made with high employee turnover generally when Vince Cable, MP, the recent British coalition Government’s Business Secretary, admitted that the flexible labour market DOES contribute to low productivity (Resolution Foundation, 2014). Moreover, there is a timely coincidence between much of the time period that productivity has been under pressure and the advent of the flexible labour market in the 1980s.

The real measure

On this basis, it is only the extent of the knowledge loss that is in question, and its unappreciated effect. Whilst the conceded departure of baby boomers’ knowledge and experience is important in its own right, it refers to the LONG-TERM awareness that they bring to their employer. Compared with flexible working’s shorter-term and institute-specific knowledge and experience that is lost on a daily, weekly and monthly basis by the rest of the working population, this is a TRIFLE. Short-tenure working in today’s workplace means that individuals, including top decision-makers (and incidentally the baby boomers themselves caught up in this workplace revolution) now change their employer on average every four-to-five years, even less in the US.

When individuals leave, they take with them up to 90% of their employers’ distinctive knowledge and experience (source: F. Bonner, American Society for Training & Development, 2000), leaving only their paper trail. More accurately, what actually disappears is the vital tacit knowledge component of their tenure – the know-how of getting things done in their employers’ special environment – that is typically unrecorded and, arguably, important in mobilising more effectively the usually recorded explicit data and information. Compound the effect over time and the retained level of the institutions’ own unique knowledge and experience is homeopathic.

At this level of retention, the typical business can only boast of an equivalent shorter organisational memory (OM) that, in turn, reflects in a compensatory inability to learn efficiently from their own experiences in every departmental grouping. The NON-learning impact of short employer tenure is that institutions largely give up the traditional way most progress in achieved – i.e. organically, one experience on another.

The only redeeming feature of all this knowledge loss and the interruption of corporeal momentum is that this intellectual expertise does not all depart at the same time. The overlap does mitigate but attempts at retention then falls prey to exiting individuals’ short, selective and defensive memory and replacements’ abilities at accurate recall. The reality is that time and jobs disruption only adds to the rolling stop-start journey of interrupted progress.

Corporate amnesia and Alzheimers

The irony about all this loss of knowledge and experience is that while flexible working liberally spreads this intellectual capital around the workforce generally, the individual employing institution is left with what I’ve identified as corporate amnesia, symptomatic of the corporate equivalent of Alzheimers. In environments of high jobs turnover, the outcome is most visible in the continuing occurrences of repeated mistakes, re-invented wheels and other unlearned lessons that litter the workplace, all derived from poorer decision-making grounded in abbreviated bodies of domestic evidence. On a rolling industrial scale such as the flexible labour market allows, the knowledge loss is truly immense alongside the other complications of continual jobs disruption, the departures of the organisations’ USP (unique selling point), the unregulated dilution of corporate cultures and the disappearance of corporate loyalties. Led by the knowledge loss, they are no friends of productivity and, collectively, are plausibly the biggest contributors to its composition.

Given that flexible working’s raison d’etre was to provide commerce and industry with an
easier way to cope with rapid change – it does – what has also happened is an actual Devil’s compromise and, truly, one of those unintended consequences of Adam Smith’s invisible hand. It is now clear that the flexible labour market was an imposed revolution carelessly monitored by Government, cheerfully exploited by employers, ignored by business educators and now additionally manipulated by valued employees who job-hop as a way of uplifting their income. And all this with a deadly sting in its wealth-creating tail that almost everyone didn’t realise was going to be so painful.

The fact that it’s been happening for more than 35 years must raise the uncomfortable question why it’s taken so long to acknowledge, albeit that the recognition still only refers to the fractional knowledge loss by baby boomers.

The bottom line

An attempt to calculate the magnitude of lost output, which provides academics’ with an indication of the possible missing number in their calculations, was made in 2005 by the international management consultancy, Proudfoot Consulting. They estimated that wasted productivity accounted for between 5.9% and 9.7% of GDP in several individual OECD countries’ (see below). Apart from my own meta-analysis reviews and observational studies of productivity’s lost cost, NO other similar formal academic research has yet been undertaken.

With this broad-sweep signal in hand of the underlying problem – and also the opportunity – several other mainstream institutions have stepped up to the plate to register their concern that the outlook is grim if productivity is not revived.

For one, Harvard Business School’s US Competitiveness Project (http://www.hbs.edu/competitiveness/Documents/problems-unsolved-and-a-nation-divided.pdf) records that productivity growth is stuck below long-term levels, hitting negative territory in the last three quarters. Alongside the graph (below) showing how underlying productivity growth has been progressively declining since the 1950s, the project’s co-leader, Professor Michael Porter, explains the seriousness of the situation: “A nation can only compete successfully and pay rising wages through high value of output per worker and per dollar of capital invested. Porter’s view, which exposes the lifeblood of the capitalist West, is that America’s competitiveness problems took root long before the 2008 downturn, adding: “Since those problems remain unsolved, it should not be surprising that the average annual economic growth (1.6%) during the current recovery is slower than during any recovery since the late 1940s.”

Another top-flight institution is equally pessimistic (McKinsey Global Institute, “Can long-term global growth be saved?” January 2015) saying that the rapid population growth and the expansion in the working-age population have run their course, and a demographic drag is set to replace the demographic dividend (see graph below). It adds that only a substantial increase in productivity growth is capable of fully counteracting waning demographic tailwinds, estimating that productivity growth will have to reach 3.3% a year – 80% faster than its average rate during the past half century in order to compensate fully for slower employment growth.

So, if the iceberg of organisation-specific knowledge loss does have a role in reducing productivity, what to do?

For all the time productivity has been seen as problematical, it is mostly Government that has stepped into the breach, with continual to upgrade infrastructure and particularly education, which – as the evidence shows in the never-higher availably of business tutelage – has fallen short, both in the vocational and tertiary fields. An increasing number of employers have got the message that they’ve got to do something but it is evident that their knowledge loss has not been addressed; even the teaching of decision-making remains a one-size-fits-all methodology suited to the out-of-date inflexible work environment.

Usefully, McKinsey Global Institute’s research points to the NON-Governmental – i.e. the bottom-up, employer-specific – solution which, crucially, requires a combined effort between institutions and educators. Their research indicates that around three-quarters of productivity growth normally comes from the broader adoption of existing best practices or catch-up improvements. The remaining one-quarter comes from technological, operational, or business innovations that go beyond today’s best practices and push the frontier of the world’s GDP potential.

How to CONNECT discontinuity

In the world of innovation this is management speak for Experiential Learning (EL), a part of the Knowledge Management (KM) function that works to APPLY the past to the present and future. For the MGI’s requirements to happen, it is necessary for employers to address their own knowledge loss by capturing important know-how – and importantly their tacit knowledge – before it walks out of the front door. This would allow replacement employees to make themselves aware of the MGI’s specified prior best practice as well as being inventive, which requires preceding awareness to originate and, in order to survive workplace disruption, endure. Such capture should include long-term and short/medium-term OM, which involves different approaches to acquire and share.

With the employers’ more comprehensive evidence base in hand, new employees must,
then, be better able to apply this know-how with their own and others’ prior experience, which is where the educators need to switch on their afterburners. Conventional decision-making requires better-quality reflective practices that can salvage the organic way of making progress. The theory and practice of Experiential Learning (EL) is a formalised discipline that business education does not enthusiastically teach, the acknowledged models for which include methodologies devised by the likes of its main proponent, Ohio’s Case Western Reserve University’s Professor David Kolb, and others.

Without the ability to more comprehensively reflect and apply, decision-making is unable to accommodate flexible working’s disruptive influence, leaving outcomes to little more than intuition, untested judgment, political expediency, subjective thinking, unnecessary experimentation and delay, all the constituents of lower productivity. Recognise anything?

If knowledge and experience are important, their loss to individual organisations must also be important. So, across the board they must be especially important. Has Nero been fiddling while Rome burns? With the productivity metric becoming increasingly important to mainstream corporate durability, it is time for employers, business education and the experts to step up and do what the market economy is supposed to do. Address the issue …..